Scotch on the Rocks

SOME call it making changes in strategy based on real market conditions. Others call it a breach of faith. Over the past year and a half, some of the biggest and best liquor manu fact urer s of the world have setup base in India. While they all came in ostensibly to sell Scotch and premium products in India, slowly but surely they are also moving downmarket into what is called the Indian Made Foreign Liquor (imfl) market.

Indian players are now crying foul. "They were supposed to enter and stay in the premium Scotch segment." says Mukesh Khetarpal, head of the liquor division of Shaw Wallace. "But that could not have sustained them. Now they are trying to replace Indian brands." As a result, foreign companies are creating a brand upheaval in the imfl segment.

Consider the number of brands launched by the joint ventures in the imfl segment. Seagram has launched Royal Stag at Rs 199. Oaken Glow at Rs 300 and Blender's Pride at Rs 475; International Distillers India (idi) has launched the Gilbey's range between Rs 130 and Rs 170. Only United Distillers (dd) has kept away from this segment because its agreement with its joint venture partner United Breweries (ub) doesn't allow it to enter the imfl market. Industry experts, however, say that ud is keen to enter the imfl market and may convince ub to allow it to do so.

The ire of Indian companies has been compounded by the ambivalent attitude of the Government. The rationale offered by the Government for allowing the entry of foreign companies was that their products would replace the smuggled Scotch consumed in India. The Government had thus asked the companies not to use molasses-based spirit in the products made for India. This was just a way of discouraging their entry into the low-end imfl segment.

Then idi sent a letter staling that the distilling licence of its partner did not prevent it from making mollasses-based spirit. The Government then clarified that thelicense of the company's Indian partner had been transferred to idi. In which case, the restriction on using molasses-based spirit does not apply to idi. To add to the confusion, however, t he restriction on the molasses-based spirit stands for Seagram as it does not have an

Indian partner. The keenness of the foreign companies to be in the imfl market is explained by its size. With 56 million cases of imfl consumed annually and demand growing at over 12 per cent per annu m. there is immense scope for new products. Says Alexander Muir. vice-president (marketing). Seagram India: "The imfl market proffers plenty of opportunities." In fact, says Vikas Kuthiala. country manager of Hiram Walker India limited: "If you are not in this market, you cannot survive."

At some level, this movement into the imfl segment was expected. Two years ago. excited potential entrants estimated the market for Scotch products at 1.5 million cases per year. But the market let down the world's biggest names in the business like Seagram, mi. Hiram Walker and til). They all came in to bottle and sell Scotch brands in India. But since their entry, the bottled-in-India Scotch brands have sold less than 50,000 cases.

One reason is that the Scotch brands which have been introduced here are not the best brands available internationally, idi has not introduced J&B here. Similarly. Hiram Walker has not brought inBallantine's.These products can be imported in bulk but the companies have a policy of not bottling these brands outside Scotland while the import of bottled products is not allowed in India. As a result, says Devin Narang, md of Narang Industries: "The brands which Indians recognise are not available here. And those available are not so well recognised."

A recent estimate by the Scotch Whisky Record, a UK research firm, puts the market size for boltled-in-India Scotch at 20.000 cases per annum. Out of the total 2.5 lakhcases of Scotch consumed in 1994-95. illegal imports accounted for almost half of them. The rest were duty-free imports. But the survey predicts that the situ ation will be reversed in the next five years. The market sizeforScotchwillhaverisenlo 3.8lakh with bottled-in-India brands holding 60 per cent of this.

Then they will have to contend with the big domestic players who are gearing up for competition. Shaw Wallace, for instance, is ready to fight. It has launched six new whiskys. two gins, two vodkas and one rum in the past year and has acquired three distilleries and three breweries. Its distilling capacity has now gone up to 10 million cases per annum. Shawr Wallace has also entered into a technical collaboration with UK'sMor-rison Bowmore to upgrade its distilleries. Says B.N. Khurana, president of Kedia Great Galleon: "Competition will never go away. II the foreign companies do not introduce new products, the Indian companies will."

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